COUNTERFEIT U.S. CURRENCY ABROAD: Issues and U.S. Deterrence
78
United States General Accounting Office GAO Report to the Honorable John M. Spratt, Jr., House of Representatives February 1996 COUNTERFEIT U.S. CURRENCY ABROAD Issues and U.S. Deterrence Efforts GAO/GGD-96-11
COUNTERFEIT U.S. CURRENCY ABROAD: Issues and U.S. Deterrence
COUNTERFEIT U.S. CURRENCY ABROAD: Issues and U.S. Deterrence
Efforts GAO/GGD-96-11United States General Accounting Office
GAO Report to the Honorable John M. Spratt, Jr., House of
Representatives
February 1996 COUNTERFEIT U.S. CURRENCY ABROAD
Issues and U.S. Deterrence Efforts
GAO/GGD-96-11
Dear Mr. Spratt:
The U.S. currency,1 reportedly the most widely held in the world,
is susceptible to counterfeiting. Of the $380 billion of U.S.
currency in circulation, the Federal Reserve estimates that over 60
percent may be held outside the United States. The widespread use
of U.S. currency abroad, together with the outdated security
features of the currency, makes it a particularly vulnerable target
for international counterfeiters.
Various congressional groups and the media have expressed concerns
about counterfeiting of U.S. currency abroad. Widespread
counterfeiting of U.S. currency could undermine confidence in the
currency and, if done on a large enough scale, could have a
negative effect on the U.S. economy. In light of these concerns,
and in response to your request, we are providing information on
(1) the nature of counterfeiting of U.S. currency abroad, (2) the
extent of that counterfeiting and of concerns about this issue, and
(3) the status of U.S. efforts to deter such counterfeiting of U.S.
currency abroad. As discussed with your office, because of
significant limitations in the data on the size and direction of
the problem of counterfeiting abroad, we were unable to reach
conclusions or comment on the adequacy or effectiveness of the
various deterrent efforts described. Also, as discussed with your
office, this report was prepared using unclassified sources of
information. The draft report underwent a security classification
review by the appropriate agencies, including Treasury and the
Secret Service, and was released by the appropriate officials as an
unclassified report.
Results in Brief U.S. currency is counterfeited by a diverse group
of perpetrators using a variety of methods. Although counterfeiters
may engage in this activity for direct economic gain,
counterfeiting is sometimes linked with other more nefarious
criminal endeavors, such as drug trafficking, arms dealing, and
alleged terrorist activities.
According to law enforcement officials, counterfeiters run the
gamut from office workers to organized crime and terrorist groups,
and the equipment
1In this report, “U.S. currency” refers to U.S. Federal Reserve
notes and does not include coined money.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 1
B-261994
used for counterfeiting U.S. currency ranges from photocopiers to
sophisticated offset presses. Moreover, the quality of counterfeit
notes varies significantly, and even those made using the same
method vary according to the sophistication of the perpetrator and
the type of equipment used. Of increasing concern is the fact that
certain foreign counterfeiters are becoming extremely sophisticated
and are producing very high-quality counterfeit notes that are more
difficult to detect than any previous counterfeits.
Due to the criminal nature of this activity, the true extent of
counterfeiting of U.S. currency abroad cannot be determined. The
total level of counterfeit-currency detections—$208.7 million in
fiscal year 1994—represented less than one one-thousandth of U.S.
currency in circulation.
Both Treasury and Secret Service officials agreed that
counterfeiting of U.S. currency is a threat to be taken seriously,
but that it is not now at a level that poses an economic threat to
the U.S. monetary system. Treasury Department and Secret Service
officials use counterfeit-detection data from the Secret Service to
help assess the extent of counterfeiting. The Secret Service has
also used these data to demonstrate significant increases in
counterfeiting activity abroad, citing a 300-percent rise in
detections in fiscal year 1993. According to the Secret Service, it
supplemented these data with intelligence information and field
experience in reaching its conclusions on the degree of and risk
represented by counterfeiting abroad.
Our analysis of the counterfeit-detection data used by Treasury and
Secret Service raised questions about their usefulness for
illustrating either actual counterfeiting activity or recent growth
in counterfeiting activity. As previously mentioned, because of the
criminal nature of this activity, the actual extent of
counterfeiting cannot be directly measured. Other limitations of
the data are that they (1) included only those counterfeit
detections that were reported to the Secret Service, and thus may
in part have been a reflection of where Secret Service focuses its
efforts; (2) may have underreported the occurrence of high-quality
notes because those notes are difficult to detect; (3) may have
reflected factors other than increased counterfeiting activity,
such as improvements in the ability to detect counterfeits or to
determine their source; and (4) may have shown fluctuations over
time that were skewed because of the occurrence of unusually large
seizures. Because of these limitations, use of the data
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 2
B-261994
alone to estimate the extent of counterfeiting or counterfeiting
trends, without appropriate qualifications, may be
misleading.
Foreign law enforcement and financial organization officials we
interviewed varied in their degree of concern over the
counterfeiting of U.S. currency. Foreign law enforcement officials
tended to be more concerned about the counterfeiting of U.S.
currency than were foreign financial organization officials.
Moreover, financial organization officials did not complain of
increases in chargebacks,2 and financial and foreign law
enforcement officials we met with provided few examples of
instances where U.S. currency was no longer accepted due to
concerns about counterfeits.
The U.S. government, primarily through the Treasury and the Federal
Reserve, has increased its efforts to deter counterfeiting
activities. However, none of these efforts have been fully
completed, and thus their success cannot be evaluated at this time.
These anticounterfeiting efforts included (1) redesigning U.S.
currency to incorporate additional security features, and then
publicizing and distributing the new currency; (2) using joint
federal agency team visits abroad to obtain more information on
counterfeiting and provide counterfeit-detection training; (3)
increasing Secret Service staffing abroad; and (4) using additional
task forces and increasing diplomatic efforts to combat
counterfeiting abroad, particularly efforts to eradicate the
highest quality counterfeit note known to the Secret Service,
commonly referred to as the “Superdollar.”3
Background The widespread use of U.S. currency abroad, together
with the outdated security features of the currency, makes it a
particularly vulnerable target for international counterfeiters.
According to the Federal Reserve, the proportion of U.S. currency
in circulation abroad has increased from 40 percent in 1970 to over
60 percent today.
High foreign inflation rates and the relative stability of the
dollar have contributed to the increasing use of U.S. currency
outside the United States. And, in fact, the United States benefits
from this international use. When U.S. currency remains in
circulation, it essentially represents an interest-free loan to the
U.S. government. The Federal Reserve has
2A chargeback occurs when the Federal Reserve or a bank detects a
counterfeit note in a deposit and charges the customer’s account
for the value of the counterfeit.
3The note is also known as the “Supernote” or the “Superbill” and
is referred to as the “C-14342 Family” by the Secret Service.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 3
B-261994
estimated that the U.S. currency held abroad reduces the need for
the government to borrow by approximately $10 billion a year.
Despite this benefit, its increasing international use has made
U.S. currency a target for counterfeiting. Furthermore, with the
exception of two changes introduced in 1990,4 the security features
of the currency have not substantially changed since 1929, which
has resulted in the U.S. dollar’s becoming increasingly vulnerable
to counterfeiting. (See fig. 1 for the existing security features
of the currency.)
4In 1990, Treasury added a security thread and microprinting to
U.S. currency.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 4
B-261994
Source: U.S. Department of the Treasury.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 5
B-261994
Congressional groups and the media have continued to highlight
their concerns that the counterfeiting of U.S. currency abroad is
becoming an increasingly serious problem. Concerns about
counterfeiting abroad were heightened in 1992 with the issuance of
the first of two reports5 by the House Republican Research
Committee’s Task Force on Terrorism and Unconventional Warfare.
These reports charged that a foreign government was producing a
very high-quality counterfeit note, commonly referred to as the
Superdollar, to support terrorist activities. In 1993, the House
Appropriation Committee’s Surveys and Investigations staff
completed a report on the Secret Service’s counterfeiting
deterrence efforts and briefed the House Appropriations Committee.
In the same year, a bill—the International Counterfeiting
Deterrence Act—was introduced to address international
counterfeiting and economic terrorism; however, it was not
passed.
The Secretary of the Treasury is responsible for issuing and
protecting U.S. currency. Treasury, including the Secret Service
and the Bureau of Engraving and Printing, and the Federal Reserve
have primary responsibilities for combating the counterfeiting of
U.S. currency. The Secret Service conducts investigations of
counterfeiting activities and provides counterfeit-detection
training. The Bureau of Engraving and Printing designs and prints
U.S. currency, which includes the incorporation of security
features into the currency. The Federal Reserve’s role is to
distribute and ensure the physical integrity of U.S. currency. It
receives currency from financial institutions around the world and
uses specialized counting and verification machines to substantiate
the authenticity of all U.S. currency received. The various
counterfeiting deterrence efforts are coordinated through the
Advanced Counterfeit Deterrence Steering Committee, which was
formed in 1982.
The Secret Service is the U.S. agency responsible for
anticounterfeiting efforts abroad. At the time of our work, the
Secret Service primarily used its six overseas offices, three task
forces, two temporary operations, and resources from six domestic
offices to conduct this task. (See app. I for a description of
Secret Service offices responsible for locations abroad.) Secret
Service offices outside the United States typically are staffed by
one to six agents. Agents working abroad are involved in the same
issues as their domestic counterparts, such as detecting
counterfeits, investigating financial crimes, and protecting
dignitaries. However, the majority of a typical agent’s time abroad
is spent on counterfeiting deterrence efforts. In
5The House Republican Research Committee, Iran, Syria and the Trail
of Counterfeit Dollars (Washington, D.C.: July 1, 1992); and
Update: Iran, Syria and the Trail of the Counterfeit Money
(Washington, D.C.: July 13, 1994).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 6
B-261994
pursuing these efforts, agents must rely on the cooperation of
foreign law enforcement agencies and sometimes are allowed to
provide only investigative support. This situation is different
from that in the United States, where agents have direct
investigative authority. The Secret Service also provides other
staff to support international counterfeiting deterrence
activities. For example, the Secret Service has assigned two
Counterfeit Division staff to work with the Four Nations Group6 and
three agents to work with Interpol—the International Criminal
Police Organization.
Scope and Methodology
To obtain information on the nature and extent of counterfeiting of
U.S. currency abroad, as well as U.S. efforts to combat this
activity, we obtained views and material from (1) U.S. government
agencies in the United States and abroad; (2) foreign law
enforcement and financial organization officials in seven European
countries, as referred to us by U.S. embassy officials; (3)
Interpol officials in the United States and abroad; and (4)
individuals researching the Superdollar case, including the author
of the House Republican Task Force on Terrorism and Unconventional
Warfare reports on the Superdollar. We performed our review in the
United States, England, France, Italy, Germany, Hungary, Poland,
and Switzerland. Interpol, State Department, and Secret Service
officials recommended these countries for our review on the basis
of their knowledge of counterfeiting abroad.
To obtain U.S. government perspectives on the nature and extent of
counterfeiting as well as on efforts to deter this activity, we
interviewed and obtained documentation from senior Treasury
officials in Washington, D.C.; Secret Service officials in
Washington, D.C.; New York, New York; San Francisco, California;
England; France; Italy; and Germany; and Bureau of Engraving and
Printing officials in Washington, D.C. We also interviewed Federal
Reserve Board officials in Washington, D.C.; Federal Reserve Bank
officials in San Francisco and New York; and State Department
officials in Washington, D.C., and abroad.
To secure information on the extent of the problem of counterfeit
U.S. currency abroad, we obtained Secret Service data on domestic
and international counterfeit detections. We then reviewed the
Secret Service’s counterfeit-detection data for fiscal year 1987
through fiscal year 1994. We also reviewed Interpol’s 1991 to 1993
annual reports on international
6The Four Nations Group, an international group with
representatives from the United States, Great Britain, Australia,
and Canada, meets every 18 months to share information on
counterfeiting trends and investigations.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 7
B-261994
counterfeiting activity. We did not independently verify the
accuracy of the data that the Secret Service and Interpol
provided.
To gain perspective on both counterfeiting and deterrence efforts
abroad, we obtained input from foreign law enforcement and
financial organization officials in the countries we visited. (See
app. II for a listing of foreign agencies and organizations we
contacted while abroad.) In conducting our interviews, we did not
pose the same questions to all officials. Thus, the responses we
obtained cannot be generalized.
The scope of our work was limited by a number of factors related to
national security and investigative concerns. First, due to the
criminal nature of counterfeiting, the actual extent of
counterfeiting abroad cannot be determined. Second, since current
known counterfeiting activities involved ongoing investigations, we
were not able to fully explore and discuss these investigations
with law enforcement and intelligence officials. Third, due to the
sensitive nature of the ongoing investigation of the so-called
Superdollar, we were unable to fully explore this extremely
high-quality, allegedly foreign government-sponsored,
counterfeiting operation. As a result of these limitations, this
report is not evaluative, and it thus contains no conclusions or
recommendations.
This report was prepared using unclassified sources of information.
The draft report underwent a security classification review by the
appropriate agencies, including Treasury and the Secret Service,
and was released as an unclassified report. Although they initially
stated that some of the information was or should have been
classified, Treasury and the Secret Service later rescinded this
statement after they performed a full security classification
review and we reached agreement with them on a minor revision to
appendix VII. (See app. VIII, pages 66 and 67, for Treasury and
Secret Service statements that the report is unclassified.)
We conducted our review from September 1994 to May 1995 in
accordance with generally accepted government auditing standards.
In June and then again in November 1995, we updated our work on
Secret Service staffing abroad. We obtained written agency comments
on a draft of this report from the Departments of the Treasury and
State and from the Federal Reserve. These comments are discussed at
the end of this report and presented in appendixes VIII through
X.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 8
B-261994
The Nature of Counterfeiting of U.S. Currency Abroad Is
Diverse
The nature of counterfeiting of U.S. currency abroad is diverse,
including various types of perpetrators, uses, and methods. The
relative sophistication of the counterfeiter and method used
results in counterfeit notes of differing quality. According to a
National Research Council report requested by Treasury,7 the
counterfeiting problem will increase as technologies improve and
are made more accessible to the public. Already, the Secret Service
has been troubled by some very high-quality counterfeits of U.S.
currency identified as originating abroad.
Perpetrators include both the casual and the professional
counterfeiter. The casual counterfeiter is a person who commits the
crime because it is convenient or easy to do. For example, an
office worker may use a copying machine to counterfeit U.S.
currency. The number of casual counterfeiters is expected to
increase with the greater accessibility of and improvements to
modern photographic and printing devices, according to the National
Research Council report. Conversely, the professional counterfeiter
may be a member of a gang, criminal organization, or terrorist
group. Foreign law enforcement and Secret Service officials that we
interviewed told us of suspected links between counterfeiting and
organized crime.
Counterfeit U.S. currency is used for economic gain and is
sometimes linked to other crimes. According to foreign law
enforcement and Secret Service officials, counterfeit U.S. currency
is sometimes distributed in conjunction with drug trafficking,
illicit arms deals, and other criminal and/or terrorist activities.
Moreover, Secret Service and foreign law enforcement officials told
us that counterfeit U.S. currency is now sometimes produced by
counterfeiters in one country for export to another country. For
example, in Milan, Italy, counterfeiting has become an industry in
which counterfeit U.S. currency is produced for export, according
to Italian law enforcement officials. They added that the
counterfeits typically were exported to the former Soviet Union and
Eastern Europe.
The methods used by counterfeiters of U.S. currency abroad are the
same as those used within the United States, according to Secret
Service officials. Common techniques include using black and white,
monochromatic, or color photocopiers; cutting and taping or gluing
numerals from high denomination notes to the corners of a note of
lower denomination, also known as making “raised notes”; using
sophisticated
7National Materials Advisory Board, Commission on Engineering and
Technical Systems, National Research Council, Counterfeit Deterrent
Features for the Next Generation Currency Design (December
1993).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 9
B-261994
computers, scanners, and laser or ink jet printers; bleaching good
notes and reprinting higher denominations on the genuine paper; and
using photomechanical or “offset” methods to make a printing plate
from a photographic negative of a genuine note.
Depending upon the sophistication of the counterfeiter and the
method used, the quality of counterfeit notes can vary a great
deal. The Secret Service has found good, fair, and poor quality
notes for each method used. For example, a good color
copier-produced note could be better than a poor ink jet-produced
note. However, the offset printing method generally results in the
highest quality counterfeits, whether produced abroad or
domestically. (See app. III for descriptions of common methods used
and some examples of counterfeit notes.)
Recently, very sophisticated counterfeiters have been producing
very high-quality notes using the offset process. High-quality
counterfeit notes are difficult for the general public to discern,
but according to Federal Reserve officials, the notes can be
detected by experienced bank tellers. (See app. IV for case
examples of high-quality counterfeit notes produced in Canada,
Colombia, and the Middle East.)
The Extent of the Problem Could Not Be Determined, and Foreign
Views Were Inconclusive
The criminal nature of the activity precludes determination of the
actual extent to which U.S. currency is being counterfeited abroad.
The best data available to reflect actual counterfeiting are Secret
Service counterfeit-detection data.8 However, these data have
limitations and thus provide only a limited measure of the extent
of counterfeiting activities. Use of these data should be qualified
to reflect these limitations so that conclusions reached using the
data do not mislead. Overall, detected counterfeits have
represented a minuscule amount of the currency in circulation.
According to Secret Service officials, the data that they gathered
was supplemented by intelligence information and field experience
to demonstrate an increase in counterfeiting activity abroad.
However, our analysis of the same counterfeit-detection data proved
inconclusive. Moreover, foreign officials’ views about the
seriousness of the problem of counterfeit U.S. currency were mixed.
Foreign financial organization and law enforcement officials that
we interviewed reported no significant numbers of chargebacks and
few reported instances of U.S. currency not being accepted
abroad.
8Interpol data, the only other international compilation of
counterfeit-currency statistics, were less reliable due to the
limited amount of reporting by foreign countries. According to
Interpol officials, reporting to Interpol was inconsistent and
mostly limited to European nations.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 10
B-261994
Treasury Believed the Level of Counterfeiting Was Economically
Insignificant
On the basis of the number of Secret Service
counterfeit-detections, Treasury officials concluded that
counterfeiting of U.S. currency was economically insignificant and
thus did not pose a threat to the U.S. monetary system. According
to Secret Service and Treasury officials, detected counterfeits
represented a minuscule portion of U.S. currency in circulation.
Secret Service and Federal Reserve data showed that, in fiscal year
1994, of the $380 billion in circulation, $208.7 million had been
identified as counterfeit notes, a figure which represented less
than one one-thousandth of the currency in circulation. However,
while Treasury and Secret Service officials agreed that, overall,
counterfeiting was not economically significant, they considered
any counterfeiting to be a serious problem.
The Secret Service Believed Counterfeiting Abroad Was
Increasing
The Secret Service reported that counterfeiting of U.S. currency
abroad was increasing. It used counterfeit-detection data,
supplemented with intelligence information and field experience, to
support this claim. It also employed two counterfeit-detection data
measures to illustrate the extent of counterfeiting abroad: (1)
counterfeit-detections abroad and (2) domestic detections of
counterfeits that were produced abroad. Counterfeits detected
abroad are categorized as “appearing abroad,” while counterfeits
detected domestically are divided into two separate categories.
Domestic detections of counterfeits not yet in circulation are
called “seizures,” and those counterfeits detected while in
circulation are called “passes.”
The Secret Service has reported a significant recent increase in
detections of counterfeit U.S. currency abroad. In one analysis, it
reported that the amount of counterfeit currency detected abroad
increased 300 percent, from $30 million in fiscal year 1992 to $121
million in fiscal year 1993, thereby surpassing domestic detections
in the same period (see fig. 2).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 11
B-261994
Figure 2: Secret Service Counterfeit Detection Data, Fiscal Years
1987-94 Dollars in millions
0
25
50
75
100
125
Fiscal years
Domestic detections
Foreign detections
Note: See pages 13 to 15 for our views on the limitations of this
data.
Source: U.S. Secret Service.
The Secret Service has also reported that, in recent years, a
larger dollar amount of the notes detected as domestic passes has
been produced outside the United States. Since 1991, the dollar
amount of counterfeit U.S. notes detected while in circulation and
produced abroad has exceeded the dollar amount of those produced
domestically (see fig. 3). In fiscal year 1994, foreign-produced
notes represented approximately 66 percent of total domestic passes
detected.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 12
B-261994
Figure 3: Secret Service Domestic Pass Data, Fiscal Years 1987-94
Dollars in millions
0
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Fiscal years
Produced within the United States
Produced outside the United States
Note: See pages 13 to 15 for our views on the limitations of this
data.
Source: U.S. Secret Service.
The Actual Extent of Counterfeiting Abroad Could Not Be
Determined
The true dimensions of the problem of counterfeiting of U.S.
currency abroad could not be determined. Treasury and the Secret
Service use Secret Service counterfeit-detection data to reflect
the actual extent of counterfeiting. However, although these data
are the best available, they have limitations. Specifically, they
are incomplete and present only a partial picture of
counterfeiting. If these limitations are not disclosed, the result
may be misleading conclusions.
First of all, the actual extent of counterfeiting could not be
measured, primarily because of the criminal nature of this
activity. Secret Service data record only those detections that are
reported to the Secret Service; they do not measure actual
counterfeiting. As a result, the data provide no information about
the number of counterfeiters operating in any given year or the
size and scope of their operations. More importantly, these data
could not be used to estimate the volume of counterfeit currency in
circulation at any point in time. In the case of counterfeit
currency
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 13
B-261994
appearing abroad, reasons for this include the following: (1) the
data do not distinguish between how much counterfeit currency was
seized and how much was passed into circulation; (2) they could not
provide information about how long passed counterfeits remained in
circulation before detection; and (3), most critically, they
provide no indication of how much counterfeit currency was passed
into circulation and not detected.
Second, counterfeit detection data may in part be a reflection of
where the Secret Service focuses its efforts. Use of these data
thus may not identify all countries with major counterfeiting
activity, but simply countries where agents focused their data
collection efforts. For example, in fiscal year 1994, almost 50
percent of detections abroad occurred in the six countries where
the Secret Service was permanently located. In other countries,
counterfeit-detection statistics tend to be more inconsistent. For
example, in fiscal year 1994, certain African and Middle Eastern
countries reported no counterfeiting activity to the Secret
Service. This lack of reported detections, however, does not
necessarily indicate that counterfeiting activity did not occur in
these countries.
Third, detection data for high-quality notes may be underreported.
The Secret Service has said that, because so few Superdollars have
been detected, this indicates that there are not many in
circulation. However, according to the Task Force on Terrorism and
Unconventional Warfare report, the majority of Superdollars are
circulating outside the formal banking system and therefore would
not be reported to the Treasury if detected. Also, as we discovered
on our overseas visits, many foreign law enforcement and financial
organization officials had inconsistent and incomplete information
on how to detect the Superdollar. Thus, financial institutions
abroad may be recirculating the Superdollars.
Fourth, reported increases in counterfeiting abroad, as supported
by Secret Service detection data, may be due to a number of factors
other than increased counterfeiting activity. For example, in 1993,
the Secret Service changed its reporting practices abroad to be
more proactive in collecting counterfeit-detection data. Instead of
relying solely on reports from foreign officials, agents abroad
began to follow up on Interpol reports and intelligence information
in order to collect additional data. Also, according to Treasury
officials, foreign law enforcement officials have improved their
ability to detect counterfeit U.S. currency and report it to the
Secret Service. Furthermore, although domestic reporting and
detection practices have been more consistent, the increase in
domestic
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 14
B-261994
detections of counterfeits produced abroad is also subject to
interpretation. For example, rather than foreign-produced notes
increasing, it is possible that the Secret Service’s ability to
determine the source of counterfeit currency has simply improved
over time.
Fifth and finally, counterfeit-detection data fluctuate over time,
and one large seizure can skew the data, particularly for
detections abroad. For detections outside the United States, the
Secret Service has relied heavily on information provided by
foreign law enforcement organizations, and has obtained little
information from financial organizations. Thus, counterfeit
detections “appearing abroad” have primarily been seizures reported
by foreign law enforcement organizations, and the size of these
seizures can have a significant impact on detection data. For
example, according to the Secret Service, several large seizures
accounted for the jump from $14 million in counterfeit detections
abroad in fiscal year 1988 to $88 million in fiscal year 1989. The
following year, the data indicated a significant drop in detections
(see fig. 2).
Foreign Views on the Extent of Counterfeiting Abroad Were
Mixed
Overseas law enforcement and financial organization officials’
views on the extent of the problem of counterfeit U.S. currency
varied. Foreign law enforcement officials tended to be more
concerned about counterfeit U.S. currency than foreign financial
organization officials. Financial organization officials we met
with said that they had experienced minimal chargebacks, and most
expressed confidence in the ability of their tellers to detect
counterfeits. Furthermore, we heard few reports from foreign
financial organization and foreign law enforcement officials about
U.S. currency not being accepted overseas because of concerns about
counterfeiting.
Most foreign law enforcement officials we spoke with believed that
the counterfeiting of U.S. currency was a problem, but their
opinions on the severity of the problem differed. While the Swiss,
Italian, and Hungarian law enforcement officials said that it was a
very serious problem, French and English law enforcement officials
said that the problem fluctuated in seriousness over time; German,
French, and Polish officials said that the counterfeiting of U.S.
currency was not as serious a problem as the counterfeiting of
their own currencies. Some of these law enforcement officials
expressed concern over increases in counterfeiting in Eastern
Europe and the former Soviet Union. Some also expressed particular
worry about their ability, and the ability of financial
organizations in their countries, to detect the Superdollar.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 15
B-261994
Conversely, most foreign financial organization officials we spoke
with were not concerned about the counterfeiting of U.S. currency.
Of the 34 organizations we visited in 7 countries, officials from 1
Swiss and 1 French banking association and 2 Hungarian banks viewed
the counterfeiting of U.S. currency as a current or increasing
problem. According to other foreign financial organization
officials, they were not concerned about U.S. counterfeiting
activity because it did not have a negative impact on their
business. For example, none of the 16 financial organization
officials with whom we discussed chargebacks told us that they had
received substantial chargebacks due to counterfeit notes that they
had failed to detect. In addition, some of these officials cited
other types of financial fraud and the counterfeiting of their own
currency as more significant concerns. For example, officials from
one French banking association were more concerned with credit card
fraud, and officials from two financial organizations in Germany
and one financial organization in France said counterfeiting of
their country’s currency was a greater problem.
Furthermore, foreign financial organization officials we spoke with
were confident about their tellers’ ability to detect counterfeits
and, in some countries, tellers were held personally accountable
for not detecting counterfeits.9 In most of the countries we
visited, detection of counterfeit U.S. currency relied on the touch
and sight of tellers, some of whom were aided by magnifying glasses
or other simple detection devices, such as counterfeit detection
pens.10 Other counterfeit-detection devices used abroad, like
ultraviolet lights, did not work effectively on U.S. currency.
While foreign financial organizations appeared confident of their
tellers’ ability to detect counterfeits, some of these
organizations had incomplete information on how to detect
counterfeit U.S. currency, particularly the Superdollar.
Finally, foreign financial organization and law enforcement
officials provided a few isolated cases in which U.S. currency was
not accepted abroad. For example, when it first learned about the
Superdollar, one U.S. financial organization in Switzerland
initially stopped accepting U.S. $100 notes, although it later
resumed accepting the U.S. notes from its regular customers. Also,
Swiss police, Hungarian central bank, and French
9For example, in Hungary tellers were charged for every counterfeit
note they accepted that the bank later detected.
10Counterfeit detection pens are filled with a chemical that, when
applied to currency, turns gold if the currency’s paper contains
certain characteristics of genuine paper and black if those
characteristics are not present.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 16
B-261994
clearing house officials reported that some exchange houses and
other banks were not accepting $100 notes. We were unable to
confirm these reports. However, a State Department official
commented that, because drug transactions tended to involve $100
notes, some foreigners were reluctant to accept this denomination,
not because of counterfeiting concerns, but rather because of the
notes’ potential link to money laundering.
Additional U.S. Counterfeit Currency Deterrence Efforts
The U.S. government, primarily through the Treasury Department and
its Secret Service and the Federal Reserve, has been increasing its
counterfeiting deterrence efforts. These recent efforts include
redesigning U.S. currency; increasing exchanges of information
abroad; augmenting the Secret Service presence abroad; and
undertaking efforts to stop production and distribution of
counterfeit currency, including the Superdollar.
In an effort to combat counterfeiting both domestically and abroad,
Treasury is redesigning U.S. currency to incorporate more security
features intended to combat rapid advances in reprographic
technology. This change, the most significant to the U.S. currency
in over 50 years, is, according to some U.S. and foreign officials,
a long overdue one. The redesigned currency is planned for
introduction in 1996 starting with changes to the $100 note, with
lower denominations to follow at 9- to 12-month intervals.
According to Treasury officials, the currency redesign will
continue, becoming an ongoing process, because no security features
are counterfeit-proof over time. These officials also said that the
old currency would not be recalled and would retain its full value.
Moreover, Treasury is leading a worldwide publicity campaign to
facilitate introduction of the redesigned currency, ensure
awareness and use of the overt security features, and assure the
public that the old currency will retain its full value. Through
this campaign, the Federal Reserve hopes to encourage the public to
turn in old currency for the redesigned notes. (See app. V for
further information on the currency redesign.)
In addition, the Secret Service, through its team visits abroad in
company with Treasury Department and Federal Reserve officials, has
both gathered further information on counterfeiting and provided
counterfeit-detection training. As of May 1995, the team had met
with law enforcement and financial organization officials in Buenos
Aires, Argentina; Minsk, Belarus; London, England; Zurich,
Switzerland; Hong Kong; and Singapore. According to Secret Service
officials, their visits
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 17
B-261994
were successful because they were able to develop better contacts,
obtain further information about foreign financial institutions’
practices, learn more about tellers’ ability to detect
counterfeits, and provide counterfeit detection training seminars
for both law enforcement and financial organization officials.
Future trips were planned to Russia and possibly the Middle
East.
Further, the Secret Service has been attempting to increase its
presence abroad, although it has encountered difficulties in
obtaining approval. The Secret Service has over 2,000 agents
stationed in the United States, but it has fewer than 20 permanent
positions abroad. The Secret Service first requested additional
staff in February 1994 for permanent posting abroad beginning in
fiscal year 1996. However, due to uncertainties over the funding of
the positions as well as to other priorities within the Treasury
Department, as of June 21, 1995, the Secret Service had secured
approval for only 6 of 28 requested positions abroad. Subsequent to
our discussions with the Secret Service, Treasury, and State, on
July 21, 1995, Treasury approved the remainder of the positions and
passed them on for State’s approval. As of November 30, 1995, the
respective chiefs of mission had approved only 13 of the 28
positions, and only 1 agent had reported to his post abroad. (See
app. VI for further information on increasing the Secret Service
presence abroad.)
Additionally, the U.S. government has undertaken special efforts to
eradicate the highest quality counterfeit note—the Superdollar.
These efforts include the use of task forces and diplomatic efforts
among senior policy-level officials of the U.S. and certain foreign
governments. Due to the sensitivity and ongoing nature of this
investigation, we were made generally aware of these efforts but
not provided with specific information. (See app. VII for further
information on U.S. efforts to eradicate the Superdollar.)
Agency Comments and Our Evaluation
The Department of the Treasury, including the Secret Service, the
Department of State, and the Federal Reserve provided written
comments on a draft of this report. (See apps. VIII, IX, and X.)
These comments included technical changes and/or factual updates
that have been incorporated where appropriate. However, Treasury,
including the Secret Service, also raised and later rescinded
issues of security classification and sensitivity and did not fully
agree with our characterization of the limitations of the Secret
Service counterfeit currency detection data and other supporting
methods for estimating trends in counterfeiting. In their
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 18
B-261994
comments, Treasury and the Secret Service made frequent reference
to activities that they believed provided additional support for
the conclusions they drew from the detection data. These activities
included contacts with foreign law enforcement and financial
organization officials, vault inspections of banks abroad, and
analysis of Federal Reserve data.
Although the Secret Service recognized the limitations of its
counterfeit currency detection data, Treasury and Secret Service
conclusions provided in hearings and reports have not always
reflected these limitations. Thus, in this report, we discuss the
data limitations and conclude that any use of the data should be
qualified to recognize these limitations. Although the Secret
Service has the best counterfeit-detection data available, this
does not negate the potential for the limitations of this data to
foster misleading conclusions. First, the actual extent of
counterfeiting cannot be determined because of the criminal nature
of this activity. Second, counterfeit-detection data may be a
reflection of where the Secret Service focuses its efforts. Third,
detection data for high-quality notes, which may more easily
circumvent detection and reporting abroad, may be even less
representative of the actual extent of the problem. Fourth,
increases in counterfeiting detections abroad may be due to a
number of factors other than increased counterfeiting, such as
improved information gathering and reporting. Also,
counterfeit-detection data fluctuate over time, and one large
seizure abroad can skew the data.
We acknowledge in this report that the Secret Service supplements
its detection data with intelligence information and field
experience. Even though we did not evaluate these specific methods,
our work did yield some information on these activities.
With regard to Treasury and Secret Service contacts with foreign
law enforcement and financial organization officials, in our
discussion of additional U.S. counterfeit currency deterrence
efforts, we acknowledge that Treasury and Secret Service officials
have recently increased their contacts with foreign financial
organizations in preparation for the U.S. currency redesign effort.
However, almost all of the foreign financial organization officials
we met with in September 1994 had had little or no contact with
Treasury and/or Secret Service officials before that time.
Regarding vault inspections of banks abroad, Secret Service
officials initially told us that they were conducting vault
inspections during their joint team visits with Treasury and
Federal Reserve officials. However, according to Federal Reserve
officials, and as subsequently confirmed by
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 19
B-261994
Secret Service officials, vault inspections had been conducted in
only one of the six locations visited during our review. Secret
Service officials told us that the inspections had been conducted
in Argentina but were then discontinued because of the limited
results obtained there. The officials told us that the inspections
might be reinstituted in other countries if it was subsequently
decided that the effort was warranted.
Finally, regarding the use of Federal Reserve data, the Secret
Service and the Federal Reserve confirmed that the Federal Reserve
data were actually a component of the Secret Service data, and thus
were effectively addressed in our evaluation of the Secret Service
data.
As agreed with your office, unless you publicly announce the
contents earlier, we plan no further distribution until 30 days
from the date of this report. At that time, we will provide copies
of the report to interested congressional committees, to the
Departments of the Treasury and State, and to the Federal Reserve.
We will also make copies available to others on request.
Please contact me at (202) 512-8984 if you have any questions
concerning this report. Other major contributors to this report are
listed in appendix XI.
Sincerely yours,
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 20
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 21
Contents
Letter 1
Appendix I Secret Service Geographic Coverage Abroad, as of May
1995
26
28
29
36
40
Contents
Appendix VI The Secret Service Is Attempting to Increase Its
Permanent Presence Abroad
47
52
53
70
73
74
Table Table VI.1: Status of Secret Service Request for Increased
Staffing Levels Abroad, as of November 30, 1995
48
Contents
Figures Figure 1: Overt Security Features of U.S. Currency 5 Figure
2: Secret Service Counterfeit Detection Data, Fiscal Years
1987-94 12
Figure 3: Secret Service Domestic Pass Data, Fiscal Years 1987-94
13 Figure III.1: Offset Printed Notes 29 Figure. III.2: Ink Jet
Printed Note 32 Figure III.3: Office Machine-copied Notes 33 Figure
III.4: Raised Note 35 Figure IV.1: The Canadian Note 36 Figure
IV.2: The Colombian Note 38 Figure V.1: New Overt Security Features
of the Redesigned U.S.
Currency 42
Appendix I
Number of agents Geographic coverage abroad
Overseas office
Bonn 1 Europe (Austria and Germany)
London 1 United Kingdom (England, Scotland, Wales, Northern
Ireland, Channel Islands, Isle of Man, Shetland Islands,
Gibraltar), Iceland, and Ireland
Manila 1 Philippine Islands
Paris 6 Africa (Algeria, Angola, Benin, Burundi, Burkina Faso,
Cameroon, Cape Verde, Central African Republic, Chad, Comoros,
Congo, Djibouti, Equatorial Guinea, Gabon, Ghana, Guinea,
Guinea-Bissau, Ivory Coast, Madagascar, Mali, Mauritania,
Mauritius, Morocco, Niger, Rwanda, Sâo Tomé & Principe,
Senegal, Togo, Tunisia, and Zaire), Europe (Belgium, Czech
Republic, Slovakia, Denmark, Finland, France, Liechtenstein,
Luxembourg, Monaco, Netherlands, Norway, Poland, Portugal/Azores,
Spain, and Switzerland), Former Soviet Republics (Belarus, Estonia,
Georgia, Latvia, Lithuania, Moldova, Russia, Tajikistan, and
Ukraine), and Greenland
Rome 5 Africa (Botswana, Egypt, Ethiopia, Gambia, Kenya, Lesotho,
Liberia, Libya, Malawi, Mozambique, Nigeria, Seychelles, Sierra
Leone, Somalia, South Africa, Sudan, Swaziland, Tanzania, Uganda,
Zambia, and Zimbabwe), Europe (Albania, Bulgaria, Cyprus, Greece,
Hungary, Italy, Malta, Romania, San Marino, Vatican City, and
former Yugoslavia), Middle East (Bahrain, Iran, Iraq, Israel,
Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey,
United Arab Emirates, Yemen Arab Republic, and Yemen Peoples
Democratic Republic)
Domestic office
Honolulu a Far East, Australia, and all U.S. Pacific
possessions
Miami a Bahama Islands, Canal Zone, Cayman Islands, Central America
(except Mexico), Cuba, Jamaica, and South America
New York a Bermuda
San Antonio a Mexico
San Juan a Puerto Rico, Virgin Islands, and West Indies (except
Bahama Islands, Cayman Islands, Cuba, and Jamaica)
Temporary assignment or task force b
Hong Kong; temporary assignment 1 Hong Kong
New Delhi, India; temporary assignment
1 New Delhi, India
Appendix I
Number of agents Geographic coverage abroad
Latin America; task force 1 Central and South America
Milan, Italy; task force 2 Italy
Nicosia, Cyprus; task force 2 Cyprus
aDomestic agents cover U.S. territories as well as geographic
regions abroad. Therefore, no specific number of agents are
assigned to cover regions abroad.
bBoth task-force and temporary-assignment agents are located in
these countries on a temporary duty basis. Agents on temporary
assignments rotate more frequently than do those assigned to the
task forces.
Source: U.S. Secret Service.
Appendix II
Country Law enforcement agency Financial organization
England National Criminal Intelligence Service
Bank of England National Westminster Bank Citibank Republic
National Bank of New York Hong Kong and Shanghai Bank Holdings,
plc
France Office Central Pour la Répression du Faux Monnayage
Association Française des Banques Banque de France Caisse
Parisienne de Réescompte American Express
Germany Bundeskriminalamt Deutsche Bundesbank Deutsche Bank
Dresdner Bank
Hungary Landes Polizei Hauptkommissariat Ungarn
Magyar Nemzeti Bank Budapest Bank Ibusz Bank Magyar Hitel Bank
American Express Citibank
Italy Polizia di Stato Guardia di Finanza Carabinieri Presso la
Banca d’Italia
Banca D’Italia Associazione Bancaria Italiana Banca Nazionale del
Lavoro Credito Italiano American Express Thomas Cook
Poland Komenda Glowna Policji Bank Polska Kasa Opieki, S.A. Bank
Handlowy W Warszawie, S.A. American Express Citibank
Switzerland Bundesamt für Polizeiwesen
Swiss Bankers Association Credit Suisse Bank Swiss National Bank
Union Bank of Switzerland Citibank JP Morgan
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 28
Appendix III
Methods of Counterfeiting U.S. Currency
Figure III.1: Offset Printed Notes
One defect in this good-quality offset counterfeit is the presence
of diagonal black lines in the hair (A).
Source: U.S. Secret Service.
According to Secret Service officials, the methods of
counterfeiting U.S. currency abroad are the same as those used
domestically and range from offset printing to raised notes. While
offset printing tends to produce the higher quality counterfeit
notes, quality can vary within each method used. In some cases, a
good color copier note can be better than a poor quality offset
counterfeit. Although some of the overt defects used to distinguish
counterfeits from genuine notes appear minor, often a combination
of defects makes it easier to distinguish between the two. It is
also important to remember that covert security features11 are
incorporated in U.S. currency, and the makeup of the genuine paper
is a highly guarded secret.
11Covert features are undetectable by the naked eye and allow
sophisticated machines, such as those maintained by the Federal
Reserve, to identify counterfeit notes when those notes are of such
high quality that they escape detection by the average citizen
during a transaction.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 29
Appendix III
Methods of Counterfeiting U.S. Currency
One defect in this fair-quality offset counterfeit is the presence
of a diagonal black line in the hair (B).
Source: U.S. Secret Service.
Offset Printed Notes Offset printing is the most common process
used by counterfeiters, according to the Secret Service. From a
photographic negative of a genuine note, a printing plate that
includes the image and nonimage area is produced. This plate is
placed on a plate cylinder, which transfers ink onto the blanket
cylinder. Then paper is rolled between this blanket cylinder and an
impression cylinder, resulting in a printed image that appears to
be flush with the surface of the paper. A review of the range of
counterfeits produced through offset printing reveals various
defects that distinguish counterfeit from genuine notes. Examples
are provided in figure III.1. The good-quality offset sample has
diagonal black lines in the hair on the right side (see fig. III.1,
A). The fair-quality offset sample has a diagonal black line near
the hair (see left side of fig. III.1, B).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 30
Appendix III
Methods of Counterfeiting U.S. Currency
One defect in this poor-quality offset counterfeit is the lack of
shading lines in the face and hair (C).
Source: U.S. Secret Service.
Finally, in the poor-quality offset sample, the portrait is missing
a majority of shading lines in the face and hair (see fig. III.1,
C).
Ink Jet Printed Notes Ink jet printing is a counterfeiting method
whose use is largely due to improvements in technology—scanners,
computers, and printers. Unlike the offset method that uses plates
to compress images onto paper, ink jet printing is a pressureless
and plateless printing process that employs computers, electronics,
electrostatics, and inks to compose and produce images. Ink jet
technology requires the image to be scanned and converted to
information that is transmitted to the computer. This image must be
created each time it is reproduced, providing counterfeiters
an
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 31
Appendix III
Figure. III.2: Ink Jet Printed Note
The ink jet counterfeit is detectable by the small colored dots
used to make up the image (A).
Source: U.S. Secret Service.
opportunity to change the serial numbers on the notes. To create
the image, ink jet printers spray tiny droplets of ink from the
printer head through a small gap of air onto the paper (see fig.
III.2, A). The ink jet counterfeit has small red, blue, yellow, and
black dots that make up the image; the genuine note does not have
these colored dots.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 32
Appendix III
Methods of Counterfeiting U.S. Currency
Figure III.3: Office Machine-Copied Notes
One identifiable defect in color machine-copied counterfeit notes
is the loss of some of the shading lines in the face and hair
(A).
Source: U.S. Secret Service.
Office Machine-Copied Notes
Copying genuine notes on office copier machines is one of the
simplest methods employed to produce counterfeits. Office machine
copiers, which include black and white, monochromatic, and color
copiers, use an electronic transfer of toner to paper. Black and
white copiers apply black toner only; monochromatic copiers apply
one color of toner at a time; and color copiers use a simultaneous
combination of yellow, light blue, bright pink, and sometimes black
toners to produce all colors.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 33
Appendix III
Methods of Counterfeiting U.S. Currency
One defect in this monochromatic counterfeit note is the break in
the borderline of the portrait oval (B).
Source: U.S. Secret Service.
The result is an image resting on the surface of the paper. Under
magnification, these counterfeits sometimes reveal small,
individual particles of toner outside the image area. Also, the
portrait image tends to be less distinct in these notes. For
example, in the sample color machine-copied note in figure III.3,
A, shading lines are missing in the face and hair. In the sample
monochromatic note, there is a small break in the lower borderline
of the oval (shown on the lower right of fig. III.3, B).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 34
Appendix III
Figure III.4: Raised Note
In this raised note, corners have been cut off a $10 note and
pasted on a $1 note (A).
Source: U.S. Secret Service.
Raised Notes Raised notes involve one of the most simplistic
counterfeiting methods. Using this method, a counterfeiter cuts
numerals from higher denomination notes and glues them to the
corners of lower denomination notes (see fig. III.4, A). To detect
these counterfeit notes, a comparison of the arabic numbers in the
corners with the text number at the bottom of the note or under the
appropriate portrait can be made.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 35
Appendix IV
Figure IV.1: the Canadian Note
Two defects in this counterfeit note are the lack of microprinting
around the portrait (A) and the break in the borderline of the
portrait oval (B).
Source: U.S. Secret Service.
Three cases, the first two provided by the Secret Service and the
third primarily by the House Republican Research Committee’s Task
Force on Terrorism and Unconventional Warfare, illustrate recent
troublesome cases concerning the counterfeiting of U.S. currency
abroad; all involve high-quality counterfeit notes produced by
using the offset printing method.
• In Canada, an individual linked to organized crime produced
counterfeit U.S. $100 notes using offset plates and a printing
press. The “Canadian Note” case took almost 2-1/2 years to solve,
despite the good relations that exist between the United States and
Canada and their respective law enforcement agencies, according to
Secret Service officials. During that period, the Secret Service
detected over $10 million worth of these
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 36
Appendix IV
Counterfeits
counterfeit notes. The Canadian Note, as opposed to a genuine note,
had the red and blue fibers printed on, rather than embedded
within, the paper. When these fibers on the counterfeit were
scratched, they would not pull from within the paper as those in a
genuine note would do. Also, for 1990 series and subsequent notes,
another security feature, the microprinting around the portrait
that reads “The United States of America,” was added. This feature
is missing from the Canadian Note shown in figure IV.1, A. Finally,
one overt defect in the Canadian Note is the break in the
right-hand lower border of the oval (see fig. IV.1, B).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 37
Appendix IV
Counterfeits
Figure IV.2: the Colombian Note
One defect in this counterfeit note is a black dot near the outer
border of the portrait (A).
Source: U.S. Secret Service.
• In Colombia, organized criminals bleach low denomination U.S.
notes and then use the bleached paper to print higher denomination
bills. According to Secret Service officials, these criminals use
the same distribution points as those for drugs to circulate the
“Colombian” or “South American Note.” In addition, according to
Secret Service officials, this note is especially disconcerting
because the paper is often genuine, a large number of variations
exist in this counterfeit family,12 and the number of counterfeits
detected for this note is large. From the time that the note was
first detected in 1981, through fiscal year 1994, over 100
varieties of these counterfeits, amounting to almost $36 million,
have been detected. One overt defect in the Colombian Note is a
black dot near the outer border of the oval on the right-hand side,
as shown in figure IV.2, A.
12According to Secret Service officials, a “family” is a grouping
of variations of counterfeit notes made by the same counterfeiters
using the same process. A family can include any number of
variations.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 38
Appendix IV
Counterfeits
• In the Middle East, a group, allegedly a foreign government, is
sponsoring production of the Superdollar. While many allegations
have been made about the Superdollar, little evidence in support of
these allegations has been made public. According to the report by
the House Republican Task Force on Terrorism and Unconventional
Warfare, the Superdollar is printed in the Middle East on
“high-tech state-owned presses with paper only acquired by
governments.” Also according to the task force, the Superdollar is
“designed for direct infiltration into the U.S. banking system and
has become a major instrument in facilitating the flow of
militarily useful nuclear materials and equipment and various
weapons systems.” A few of the foreign law enforcement and
financial institution officials we spoke with believed the
Superdollar was being circulated through various terrorist
organizations around the world, on the basis of reports of
detections involving individuals with links to terrorist
organizations. According to the Treasury Department, no evidence
exists to show that the note is printed with paper acquired only by
governments or that the note is designed for direct infiltration
into the U.S. banking system. Treasury also maintained that support
for the remaining allegations concerning the Superdollar is
inconclusive. Furthermore, although the Task Force reported that
between $100 million and billions in Superdollars is in
circulation, no evidence has been provided to support these
allegations. Since the Superdollar was first detected in fiscal
year 1990, Superdollar detections have represented a small portion
of total counterfeit currency detections, according to Treasury and
the Secret Service. (Due to the sensitivity and ongoing nature of
this case, defects in and pictures of the Superdollar were not
included in this report.)
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 39
Appendix V
Treasury Department to Introduce Currency Redesign
To deter counterfeiters both domestically and abroad, the Treasury
Department plans to issue newly designed U.S. currency with more
internal security features. According to Treasury officials, the
redesign is a preemptive step to protect U.S. currency from
high-tech counterfeiting. Some U.S. and foreign officials agreed
that the change is overdue because the current U.S. currency design
is outdated and easy to counterfeit. The new design incorporates a
number of new security features and will be periodically reexamined
and updated because no one security feature alone is sufficient and
no single currency design can deter counterfeiting indefinitely.
The U.S. strategy for introducing the new currency includes the
replacement of old currency as it goes through the Federal Reserve
system and the encouragement of exchanges of old currency for the
newly redesigned currency. The U.S. strategy does not include a
recall of old U.S. currency. Finally, to facilitate introduction
and maximize the effectiveness of the redesigned currency, Treasury
has initiated a worldwide public information campaign. Through this
campaign, Treasury and Federal Reserve officials plan to emphasize
and thus increase the effectiveness of the new security features,
make the public aware that the old currency will retain its value,
and encourage individuals to exchange their old currency for the
redesigned notes.
The Current U.S. Currency Design Is Outdated and Easy to
Duplicate
Some officials in the United States and abroad agree that the
current design of U.S. currency is outdated, making it particularly
vulnerable to counterfeiting. The U.S. currency has had only two
changes in over 50 years, both in 1990. According to a June 1,
1995, Treasury Inspector General’s report,13 despite the 1990
addition of a security thread and microprinting, the lack of more
major changes to the U.S. currency has apparently left the United
States with a less technologically advanced currency than those of
other industrialized nations. For example, the report pointed out
that Japan has already incorporated special ink to deter
counterfeiters, and Finland and Australia have added features
similar to holograms (three-dimensional pictures) to their
currency. The Treasury Inspector General concluded that, because of
the advances made by other nations and the lack of similar changes
by the United States, the U.S. currency has become one of the
easiest to duplicate. This conclusion was
13Treasury Inspector General, Treasury’s Overt Changes to Currency
Enhance Counterfeit Deterrence (June 1, 1995).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 40
Appendix V
Redesign
further supported by reports contracted by the Bureau of Engraving
and Printing14 and the Committee on Next-Generation Currency
Design.15
During our overseas visits, officials from the Swiss, German, and
Hungarian central banks told us that the United States should
consider improving the security features within its currency. The
Hungarian central bank and the Swiss bankers association commented
that the counterfeiting of U.S. currency was particularly egregious
because the design of the dollar is technologically out of date.
German and English law enforcement officials noted that U.S.
currency could be widely counterfeited because it is so easy to
copy. Additionally, officials of a currency exchange business in
Italy stated that, if the United States did not protect its
currency by adding deterrence features, then increases in
counterfeiting could lead to the devaluation of the dollar.
Currency Redesign Incorporates New Security Features, With More to
Be Added Over Time
After the 1990 security features were added to the U.S. currency
design, the Advanced Counterfeit Deterrence Steering Committee
formed the New Currency Design Task Force to analyze and recommend
new security features. On the basis of the task force findings, the
steering committee presented its recommendations to the Secretary
of the Treasury on changing U.S. currency. In 1992, the task force
contracted with the National Research Council to recommend overt
counterfeit-deterrence features. The study was completed in 1993
and was used by the task force to recommend the new security
features.
The new U.S. currency maintains its traditional appearance while
incorporating new security features. The redesigned notes retain
their familiar size and colors, with portraits of the same
historical figures on the front and the same buildings or monuments
on the back. The greatest number of new security features are
incorporated in the highest denomination bills, with fewer features
built into the lower denomination bills that are less likely to be
counterfeited. The new security features include overt features
easily recognized by the public and covert features for use by the
banking system. The most obvious changes are a 50-percent larger
portrait that is off-center and the inclusion of a watermark that
is visible when the note is held against a light source (see fig.
V.1).
14Price Waterhouse and The Institute for the Future, Implications
of Increased Counterfeiting (September 30, 1986).
15National Materials Advisory Board, Commission on Engineering and
Technical Systems, National Research Council, Counterfeit Deterrent
Features for the Next Generation Currency Design (December
1993).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 41
Appendix V
Redesign
Figure V.1: New Overt Security Features of the Redesigned U.S.
Currency
Source: U.S. Department of the Treasury.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 42
Appendix V
Redesign
Production and distribution of the newly redesigned currency will
take several years to complete. The new $100 note will be
introduced in 1996, with lower denomination notes following at 9-to
12-month intervals,16
according to Federal Reserve officials. The $100 note will be
produced first because it is the note most widely counterfeited
abroad. The Bureau of Engraving and Printing has estimated that the
first-year production costs for the $100 note will represent an
increase of between $7.5 million and $10 million from current
levels because of the addition of the new security features.
Although these new deterrent features represent a significant
change to the currency, these changes will not be the last.
According to Treasury Department officials, the combination of
rapidly advancing technology, the continued worldwide demand for
U.S. currency, and the ability of counterfeiters to compromise
deterrents over time will necessitate future currency redesigns.
Therefore, the Advanced Counterfeit Deterrence Steering Committee
will continue to review, on an ongoing basis, the need for future
deterrents. Treasury has also established the Securities Technology
Institute at The Johns Hopkins University’s Applied Physics
Laboratory to develop new materials to be used in U.S. currency to
further deter counterfeiting.
Additionally, the Secret Service has begun to develop more
comprehensive evaluation methods for the currency’s
counterfeit-deterrence features. The Treasury Inspector General’s
office, which evaluated the security features added in 1990, has
recommended that the Treasury Department develop a comprehensive
system of performance measures for past and future deterrents.17
The Secret Service plans to develop a performance measurement
method that will include a more detailed computer classification
system. The system would allow for categorization of different
counterfeit notes according to the features and series that they
attempt to simulate. Moreover, the Bureau of Engraving and Printing
may pursue the development of a classification system through its
contract with the Securities Technology Institute.
16According to the Federal Reserve, it takes almost a year to make
a production plate.
17Treasury’s Overt Changes to Currency Enhance Counterfeit
Deterrence (Washington, D.C.: June 1, 1995).
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 43
Appendix V
Redesign
Treasury’s Introduction of the Redesigned Currency Will Not Include
a Recall
Although officials in some countries believe a recall should be
issued in conjunction with the introduction of newly redesigned
currency, Treasury and Federal Reserve officials believe they have
developed a more appropriate strategy for the United States. The
strategy calls for the withdrawal from circulation of old or worn
notes as they go through the Federal Reserve system and their
replacement by the redesigned currency, as well as the publicizing
of the new notes to encourage the public to exchange old currency
for new. In this way, Treasury and Federal Reserve officials expect
the number of old notes in circulation to diminish over time,
eliminating the need for a recall. Treasury officials have
concluded that this strategy will be more cost-effective and less
risky to the stability of the U.S. dollar.
Some foreign law enforcement and a few foreign financial
organization officials suggested that the United States might wish
to consider recalling all old currency after distributing the new
currency. Foreign officials said that changes to and recalls of
other countries’ currencies are common methods of combating
counterfeiting abroad and that, without a recall, there is nothing
to stop perpetrators from counterfeiting the old currency. For
example, foreign law enforcement officials told us that, although
the United States incorporated two new security features into its
currency issued in 1990, counterfeiters in Paris circumvented this
effort by counterfeiting 1988 notes that did not have the new
features. In addition, a U.S. terrorism expert expressed the
opinion that, in order to eradicate the Superdollar, a recall would
be necessary.
Conversely, a few other foreign financial organization officials
acknowledged the cost and other concerns cited by Treasury in
choosing not to recall the old currency. Some of these officials
suggested that the amount of U.S. currency in circulation would
make a recall extremely difficult and costly. Other foreign law
enforcement and financial organizations did not comment on
recalls.
The strategy as developed calls for the Federal Reserve to remove
old $100 and $50 notes from circulation as they go through the
Federal Reserve banks and to reissue only the newly redesigned
currency. Federal Reserve officials told us that it is possible
that they will not remove the lower denomination notes until they
have completed their normal lifespan, because their lifespan is
usually shorter than that of the higher denomination notes. For
example, a $20 note is generally faded and torn after 2.5 years in
circulation and is thus removed from circulation, whereas the
lifespan of a $100 note is 6 or more years.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 44
Appendix V
Redesign
Federal Reserve officials also told us that they expected a large
demand for the new currency and that, although the U.S. government
will not issue a recall, it will develop a publicity campaign to
encourage people to exchange older currency for new currency.
Treasury and Federal Reserve officials expected people to gravitate
to the new currency, particularly in overseas areas where older
notes are already subject to greater scrutiny. They said that, at
some point, the new currency will greatly exceed the old currency
in circulation and that by then merchants will universally prefer
the new currency and subject the old currency to even greater
scrutiny. Thus, they concluded, counterfeiting of the old notes
would diminish over time. They added that they were more worried
that the demand for the new currency would exceed the supply than
that the old currency might be counterfeited.
Treasury officials said that they have no plans for a recall of the
old currency because the costs are not justifiable and a recall
could negatively affect the stability of the U.S. dollar.
• According to Treasury officials, the potential costs associated
with a recall are not warranted given the current level of
counterfeiting. The cost of a recall of all old U.S. currency would
be tremendous because U.S. currency is an international currency
that is widely held abroad. Treasury believed that, since the
legitimate use of U.S. currency significantly outweighs the
illegitimate use, imposing the enormous cost of a recall on
legitimate users would not be justified.
• Treasury officials also told us that the stability of the U.S.
dollar is primarily due to the stability of the U.S. economy and
the stature of the United States around the world. They added that
a recall of U.S. currency could negatively affect this stability.
The United States has made only two overt changes to its currency
since 1929 and has never recalled its currency. People have faith
in a currency because they believe it will retain its value.
Moreover, the U.S. Treasury earns revenues from the use of U.S.
currency abroad, and a decrease in the use of U.S. currency abroad
thus would have a negative impact on these revenues. For example,
according to a Treasury official, a 1-percent decrease in U.S.
currency holdings overseas would cost the Treasury $75 million in
annual revenues.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 45
Appendix V
Redesign
Worldwide Effort to Facilitate the Introduction of the Redesigned
Currency
Treasury is developing and implementing a comprehensive, worldwide
public education campaign to facilitate the introduction of the new
currency. Through this public education effort, Treasury officials
hope to (1) increase the effectiveness of the new security features
by publicizing the overt ones, and (2) ensure that individuals
around the world realize that the old notes will retain their value
and that the U.S. government has no plans to recall U.S. currency.
Also, Federal Reserve officials said that they hope to encourage
individuals to exchange old notes for newly redesigned ones.
A Treasury Inspector General’s report has noted that the 1990 overt
security features were not as effective as hoped, partially because
of the lack of an adequate long-term public education program. And,
with the introduction of the redesigned currency in 1996, the need
to educate the public will be even greater because three different
Federal Reserve Note designs will then be in circulation: (1)
pre-1990 notes without the security thread and microprinting, (2)
1990 and later notes with the security thread and microprinting,
and (3) the newly redesigned notes.
Treasury’s publicity campaign is expected to include the use of (1)
a high-profile campaign spokesperson, the Treasurer of the United
States, to inform the public about the newly redesigned currency;
(2) staff dedicated solely to public education who will work with
the U.S. Information Agency to encourage the establishment of
foreign focus groups, as well as an outside firm to help craft and
disseminate the message to the general public and selected target
audiences abroad; (3) U.S. embassies overseas and foreign-desk
officers at Treasury as points of contact for information regarding
the redesign effort; and (4) the Federal Reserve, which has already
begun to send information about the redesign effort to central
banks around the world. Additionally, according to the Secret
Service, it intends to conduct an extensive training program for
law enforcement and financial organization officials.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 46
Appendix VI
The Secret Service Is Attempting to Increase Its Permanent Presence
Abroad
To better combat the counterfeiting of U.S. currency, the Secret
Service has requested an increase in its permanent presence abroad.
As of May 1995, the Secret Service had the following overseas
strength: 6 permanent offices with 16 agents assigned to them, with
this permanent presence supplemented by 3 task forces, 2 temporary
assignments, and 6 domestic offices covering additional geographic
locations abroad. In February 1994, the Secret Service requested
additional positions abroad, and over a period of 5 months, the
total positions requested grew to 28. The Secret Service had hoped
that these positions would be staffed by the beginning of fiscal
year 1996. However, due to uncertainties over funding and to other
Treasury priorities, as well as to the normal approval and staff
selection timeframes at Treasury and State, as of November 30,
1995, only 13 of the 28 positions had been approved (see table
VI.1.), and only 1 agent had moved to his new post abroad.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 47
Appendix VI
Its Permanent Presence Abroad
Table VI.1: Status of Secret Service Request for Increased Staffing
Levels Abroad, as of November 30, 1995
Locations
Secret Service staff increase requested
Under discussion between Treasury and U.S. chief of mission
Disapproved Approved
New offices
1 agentb
1 agentb
a c 2 agents 1 support
Hong Kong 2 agents 1 support
1 agent 1 support
c
2 agents 1 support
a c 1 agentb 1 support
France 2 agents a c 2 agentsb
Germany 1 agent 1 support
a 1 support 1 agentb
Italy 2 agents a c 2 agentsb
The Philippines 1 agent 1 agent c c
Thailand 1 agent 1 agent c c
Total 20 agents 8 support
6 agents 3 support
3 agents 3 support
11 agents 2 support
cNot applicable.
Sources: U.S. Departments of the Treasury and State.
On February 2, 1994, the Secret Service submitted a request to the
Treasury Department for funding under the Crime bill (Violent Crime
Control and Law Enforcement Act of 1994, Public Law 103-322, Sept.
13, 1994). The Secret Service requested staffing for new offices in
Bogota, Colombia; Mexico City, Mexico; Ottawa, Canada; Nicosia,
Cyprus; and
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 48
Appendix VI
Its Permanent Presence Abroad
Hong Kong. It requested additional staffing for existing offices in
Rome, Italy; Paris, France; Bonn, Germany; London, England; Manila,
the Philippines; and Bangkok, Thailand. The Secret Service provided
justification for its request, stating that counterfeit U.S.
currency being produced and circulated overseas had dramatically
increased and that high-quality counterfeiting had also escalated
overseas. The Secret Service added that, because of its extremely
limited resources abroad, it was not always able to take timely
action to suppress counterfeiting abroad. The Secret Service
provided the examples of the Rome and Paris offices, which cover
districts consisting of over 40 countries with respective
complements of 5 and 6 special agents. Additionally, on June 6,
1994, the Secret Service requested approval to open and staff a new
office in Moscow, Russia, stating that the office was needed due to
the burgeoning economic crimes in Russia and Eastern Europe.
As the Secret Service continued to maintain its need for 28
additional staff abroad, because of concerns over funding
constraints, Treasury was considering a plan to consolidate
Treasury Bureau staff overseas in a cost-saving effort.
Subsequently, on August 15, 1994, Treasury sent a request to State
to approve 22 Treasury agents and 4 support staff to be taken from
the Secret Service and other enforcement bureaus’ staffs, depending
on the greatest need at each location. The Treasury request stated
that the positions would be funded with existing resources should
Congress not approve additional funding. State responded with the
request that Treasury specify the bureau to which each position was
to be assigned.
On September 30, 1994, the Treasury, Postal Service, and General
Government Appropriations Act for fiscal year 1995 made $5 million
available to the Secret Service to combat the counterfeiting of
U.S. currency. However, according to the Treasury Department Budget
Adviser for Enforcement, Secret Service base funding was still
uncertain at that date. Thus, on November 18, 1994, Treasury sent a
letter to State requesting that 11 of the positions it had
requested on August 15 be Secret Service agents for the new
offices, as requested by the Secret Service. However, Treasury did
not forward a request for additional staffing of the existing
offices at that time.
On March 29, 1995, State sent a letter to Treasury providing an
update on Treasury staffing requests, including the Secret Service
positions, asking
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 49
Appendix VI
Its Permanent Presence Abroad
Treasury to respond to the cables from the chiefs of mission,18
which had already been forwarded to Treasury. Five of the requested
agent positions had been approved, contingent on various
clarifications. Approvals consisted of two positions in Cyprus, one
in Hong Kong, one in Colombia, and one in Canada. The majority of
the concerns and questions dealt with the funding of administrative
support costs. Furthermore, State noted that it had not yet
received proposals for the additional Secret Service positions and
that the proposals were needed so that State could forward them to
the chiefs of mission concerned.
As of our exit briefings with the Secret Service, Treasury, and
State in May 1995, Treasury had not yet responded to the cables
from the chiefs of mission, with the exception of that from
Nicosia, and had not requested any additional Secret Service
positions for offices abroad. According to a Treasury budget
official, funding had remained uncertain until recently, and then
other priorities took precedence. However, the budget official also
told us that a request for the remaining positions would be
forwarded to State and that the cables would be answered
shortly.
Subsequently, on June 5, 1995, the Secret Service provided Treasury
with a letter stating that it had not yet received a formal
response regarding the remaining positions and that it was willing
to fund administrative support costs. The Secret Service also asked
that the process be expedited. In a June 13, 1995, letter from the
Secret Service to Treasury, the Secret Service stated that it was
moving ahead with candidate selection for the approved Cyprus, Hong
Kong, Bogota, and Ottawa positions and expected to have those
positions staffed in early fiscal year 1996.
On July 21, 1995, Treasury approved the remainder of the Secret
Service’s 28 requested positions and forwarded the request to
State. Cables were sent to the respective chiefs of mission for
approval.
Finally, as of November 30, 1995, the Secret Service had received
approval from the chiefs of mission for 13 of the 28 new positions
originally requested. Approvals had been granted for staff in
Canada, Colombia, Cyprus, Hong Kong, England, France, Germany, and
Italy. Requests for staff in Mexico and additional staff in Canada
and Germany had been denied. Requests for staff in Colombia, Hong
Kong, Russia, the Philippines, and Thailand were still under
discussion between Treasury and the chiefs of mission.
18The authority to determine the size, composition, and mandate of
mission staffing elements rests with the chief of mission and the
Secretary of State. Other U.S. government agencies do not have
decision-making authority with respect to the size, composition, or
mandate of missions abroad.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 50
Appendix VI
Its Permanent Presence Abroad
However, although gains appear to have been made in the approval
process, staff selection and movement of staff to their new posts
abroad still remained to be completed. According to the Secret
Service, as of November 30, 1995, only one agent had moved into his
new position abroad (in Canada); two other staff had been selected
for other positions and were preparing to move; and the selection
process was just beginning for the remaining approved
positions.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 51
Appendix VII
U.S. Efforts to Eradicate the Superdollar
U.S. efforts to eradicate the Superdollar include an interagency
task force led by the Secret Service, an overseas Secret Service
task force, and diplomatic efforts between senior policy-level
officials of the involved countries. Due to the sensitivity and
ongoing nature of this investigation, we were made generally aware
of these efforts but were not given specific information. However,
the Secret Service has provided classified briefings to Members of
Congress on efforts to eradicate the Superdollar.
In a February 1994 Secret Service request to Treasury for funding
under the 1994 Crime bill, the Secret Service stated that, for the
past 4 years, it had spearheaded a multiagency effort to suppress
the most technically sophisticated note detected in the history of
that agency. This initiative has prompted an unprecedented forensic
effort, utilizing the resources of the Secret Service, other
government offices, and several national laboratories.
According to a State Department official, senior policy level
officials in the U.S. government are conducting ongoing diplomatic
efforts concerning the Superdollar with Middle Eastern government
officials. This official said that, in May 1995, our government
asked these foreign governments to provide a show of good faith in
improving relations by locating the printing plants and
perpetrators involved in producing the Superdollar. He added that
these efforts did not specifically implicate these governments in
the production of the Superdollar, but that, at a minimum, they
were believed to be tolerating this illegal activity within their
borders.
U.S. and Interpol officials we interviewed stated that final
resolution of cases similar to that of the Superdollar, should such
cases occur, were beyond the purview of law enforcement agencies
and would require diplomatic solutions. According to U.S. and
Interpol officials, jurisdictional constraints may prevent law
enforcement agencies from dealing effectively with cases of
foreign-condoned or foreign-sponsored counterfeiting of U.S.
currency. In such cases, the Secret Service would be able only to
identify and assist in suppressing the distribution of the
counterfeit notes. In countries where the United States has no
diplomatic relations, U.S. law enforcement has no leverage to aid
in the deterrence of counterfeiting. U.S. and Interpol officials
agreed that the decision on how to suppress a foreign
government-condoned or foreign-sponsored counterfeiting plant would
need to be made at a senior U.S. government level.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 52
Appendix VIII
Comments From the Department of the Treasury
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 53
Appendix VIII
Treasury
Appendix VIII
Treasury
Appendix VIII
Treasury
Now on p. 18.
Appendix VIII
Treasury
GAO/GGD-96-11 Counterfeit U.S. Currency AbroadPage 57
Appendix VIII
Treasury
Appendix VIII
Treasury
Appendix VIII
Treasury
Appendix VIII
Treasury
Now on pp. 13-15.
Now on p. 14.
Appendix VIII
Treasury
Now on p. 17. See comment